National Coal Corp. Reports First Quarter 2007 Results

National Coal Corp. (Nasdaq: NCOC):

Revenues for first quarter 2007 total approximately $19 million, down 7.3% from $20.5 million realized in the first quarter 2006 and 11.6% from $21.5 million in the fourth quarter 2006.

Coal sales total approximately 368,000 tons, a 1% decrease versus 372,000 tons sold in the same period last year and an 9.4% decrease versus 406,000 tons sold last quarter.

Coal production for the first quarter 2007 totaled 300,792 tons, down 5.6% from 318,607 tons produced in the same prior-year period.

Cost of sales decreased by 15.1% and 16.6% from the first quarter and fourth quarter of 2006, respectively. On a per ton basis, cost of sales decreased from $55.70 per ton in Q1 2006 to $47.77 per ton this quarter, or 14.2%.

Total operating expenses decreased $3.3 million, or 12.5% from the same prior-year period.

National Coal Corp. (Nasdaq: NCOC), a Central Appalachian coal producer, reports that during the three months ended March 31, 2007, it generated total revenues of $19.0 million primarily through the sale of 368,332 tons of coal. In the same period, the Company produced 300,792 tons and purchased 129,472 tons of coal. In the first quarter of 2006, the Company reported revenues of $20.5 million which were based on the sale of 372,109 tons of coal. That same quarter, National Coal produced 318,607 tons and purchased 106,215 tons of coal.

This quarter, National Coal reports decreased net and operating losses as compared to the first quarter 2006 and the fourth quarter 2006. The operating loss for the period ended March 31, 2007 decreased to $4.3 million, relative to the loss of $6.2 million reported in the same prior-year period, a decrease of $1.9 million. Further, it is a $0.9 million decrease from the $5.2 million operating loss reported in the fourth quarter of 2006. Net loss for the period ended March 31, 2007 decreased 22% to $6.0 million as opposed to the $7.7 million loss reported in the same prior-year period. The reported net loss for the first quarter 2007 is also down 20% relative to the $7.5 million loss reported in the fourth quarter of 2006.

Adjusted EBITDA totaled approximately $0.03 million compared to a negative $2.0 million in the year-ago quarter and a negative $1.3 million during the fourth quarter of 2006.

In the first quarter 2007, relative to the first quarter of 2006, the Company experienced an 11.5% decrease in sales price per ton. Also, when compared to the fourth quarter of 2006, the sales price per ton has decreased by 7%. In response to declining prices, the Company has focused its efforts on reducing production costs at least equal to the percentage decline in sales prices. In the first quarter 2007, the Company achieved 15.1% and 16.6% decreases in costs of sales versus the first and fourth quarters of 2006, respectively. A primary factor, representing 55% of the decrease from the first quarter 2006 to the first quarter 2007, is a $1.8 million charge related to the repair of the highwall miner damaged in March 2006.

“Our efforts are paying off and it’s evident in the results of this quarter,” explained Daniel Roling, President and CEO of National Coal. “We’ve made improvements designed to reduce costs and have completed the investments needed to increase production capacity. As a result, we are now well-positioned to increase our production when the time is right. Over the past year the entire industry has experienced rising inventories and declining sales prices. At electric utilities, coal stockpiles declined from their earlier highs because of the late winter weather. Looking forward, we are hopeful of a more balanced market going into the summer months. For our part, we have sustained, and will continue to sustain, ourselves by focusing on containing costs in preparation for the future.”

On March 2, 2007 National Coal sold three million shares of its common stock at the February 28, 2007 closing consolidated bid price of $4.65 per share. Two institutional investors purchased 2.8 million shares and Daniel Roling purchased the remaining 200,000 shares. Proceeds from the sale were approximately $14.0 million and will be used for potential internal and external growth opportunities and to fund general operating and working capital needs.

As of March 31, 2007, National Coal controlled approximately 35.9 million estimated recoverable tons of coal. Mining complexes operating at National Coal include two underground mines, two surface mines, and one highwall mine. In addition, the Company has two active preparation plants and two active unit train loading facilities that are served by the CSX and Norfolk Southern railroads. National Coal also holds permits to open five mines close to current operations.

About National Coal Corp.

Headquartered in Knoxville, Tenn., National Coal Corp., through its wholly-owned subsidiary, National Coal Corporation, is engaged in coal mining in East Tennessee and Southeastern Kentucky. Currently, National Coal employs about 240 people and produces coal from mines in Tennessee and in Kentucky. National Coal sells steam coal to electric utilities in the Southeastern United States. For more information visit www.nationalcoal.com.

Information about Forward Looking Statements

This release contains “forward-looking statements” that include information relating to future events and future financial and operating performance. Examples of forward looking-statements include anticipated benefits of improvements and an anticipated more balanced coal market in the future. Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by which, that performance or those results will be achieved. Forward-looking statements are based on information available at the time they are made and/or management’s good faith belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause these differences include, but are not limited to: (i) the worldwide demand for coal; (ii) the price of coal; (iii) the price of alternative fuel sources; (iv) the supply of coal and other competitive factors; (v) the costs to mine and transport coal; (vi) the ability to obtain new mining permits; (vii) the costs of reclamation of previously mined properties; (viii) the risks of expanding coal production; (ix) the ability to bring new mining properties on-line on schedule; (x) industry competition; (xi) our ability to continue to execute our growth strategies; and (xii) general economic conditions. These and other risks are more fully described in the Company’s filings with the Securities and Exchange Commission including the Company’s most recently filed Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, which should be read in conjunction herewith for a further discussion of important factors that could cause actual results to differ materially from those in the forward-looking statements. Forward-looking statements speak only as of the date they are made. You should not put undue reliance on any forward-looking statements. We assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information, except to the extent required by applicable securities laws. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.

NATIONAL COAL CORP.CALCULATION OF EBITDA(UNAUDITED)

 

EBITDA is defined as net loss plus (i) other (income) expense, net, (ii) interest expense, (iii) depreciation, depletion, accretion and amortization minus (iv) interest income. Adjusted EBITDA is defined as EBITDA plus stock-based compensation expense. We present EBITDA and Adjusted EBITDA to enhance understanding of our operating performance. We use EBITDA and Adjusted EBITDA as a criteria for evaluating our performance relative to that of our peers, including measuring our cost effectiveness and return on capital, assessing our allocations of resources and production efficiencies and making compensation decisions. We believe that EBITDA and Adjusted EBITDA are operating performance measures that provide investors and analysts with a measure of our operating performance and permits them to evaluate our cost effectiveness and production efficiencies relative to competitors. However, EBITDA and Adjusted EBITDA are not measurements of financial performance under accounting principles generally accepted in the United States of America (“GAAP”) and may not be comparable to other similarly titled measures of other companies. EBITDA and Adjusted EBITDA should not be considered as alternatives to cash flows from operating activities, determined in accordance with GAAP, as indicators of cash flows. The following reconciles our net loss to EBITDA and Adjusted EBITDA:

Three Months Ended

March 31,

December 31,

2007 

2006 

2006 

Net loss

$ (5,961,518)

$(7,678,894)

$ (7,517,689)

Other (income) expense, net

(110,654)

(124,124)

527,304 

Interest income

(298,637)

(216,754)

(238,034)

Interest expense

2,104,348 

1,868,844 

2,074,326 

Depreciation, depletion, amortization and accretion

3,628,596 

 

3,832,236 

 

3,636,347 

EBITDA

(637,865)

(2,318,692)

(1,517,746)

Stock-based compensation expense (1)

669,368 

348,848 

222,404 

Adjusted EBITDA

$ 31,503 

$(1,969,844)

$ (1,295,342)

(1) Includes $434,493 non-cash expense attributable to immediately exercisable options sold to the President and CEO by the Chairman of the Company’s Board of Directors who is also the former President and CEO. The options, purchased for $10, allow for the purchase of 400,000 shares of National Coal common stock at an exercise price of $7.00 per share until December 31, 2008. The provisions of SFAS 123(R), Share-based Payment, require recognition of a capital contribution and compensation expense at fair value for share-based payments awarded to an employee by a related party.

NATIONAL COAL CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

March 31,

2007

December 31,

2006

Assets

Current assets

Cash and cash equivalents

$ 9,690,013 

$ 2,180,885 

Accounts receivable

3,255,461 

3,712,779 

Inventory

4,507,390 

2,221,742 

Prepaid and other current assets

697,139 

867,247 

Total current assets

18,150,003 

8,982,653 

 

Assets held for sale

– 

640,649 

Property, plant equipment and mine development, net

54,055,169 

55,837,627 

Deferred financing costs

2,709,670 

2,856,534 

Restricted cash

17,447,614 

17,246,751 

Other non-current assets

689,747 

427,516 

Total Assets

$ 93,052,203 

$ 85,991,730 

 

Liabilities and stockholders’ equity (deficit)

Current liabilities

Current maturities of long-term debt

$ 3,898,009 

$ 4,720,671 

Current installments of obligations under capital leases

210,862 

351,668 

Current portion of asset retirement obligations

1,245,659 

1,378,967 

Accounts payable and accrued expenses

9,738,445 

11,981,495 

Total current liabilities

15,092,975 

18,432,801 

 

Long-term debt, less current maturities, net of discount

64,103,994 

62,093,134 

Obligations under capital leases, less current installments

156,749 

321,071 

Asset retirement obligations, less current portion

6,002,206 

5,835,927 

Deferred revenue

903,815 

1,032,426 

Other non-current liabilities

265,548 

199,430 

Total liabilities

86,525,287 

87,914,789 

Commitments and contingencies

– 

– 

Stockholders’ equity (deficit)

Series A convertible preferred stock, $.0001 par value; 8% coupon; 1,611 shares authorized; 702.54 and 782.54 shares issued and outstanding at March 31, 2007 and December 31, 2006, respectively

– 

– 

Common stock, $.0001 per value; 80 million shares authorized; 19,540,745 and 16,340,744 shares issued and outstanding at March 31, 2007 and December 31, 2006, respectively

1,954 

1,634 

Additional paid-in capital

56,460,876 

42,049,703 

Accumulated deficit

(49,935,914)

(43,974,396)

Total stockholders’ equity (deficit)

6,526,916 

(1,923,059)

Total liabilities and stockholders’ equity (deficit)

$ 93,052,203 

$ 85,991,730 

NATIONAL COAL CORP.CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(UNAUDITED)

Three MonthsEnded March 31,

2007 

2006 

 

Revenues

Coal sales

$ 18,813,897 

$ 20,237,770 

Other revenues

221,048 

230,962 

Total revenues

19,034,945 

20,468,732 

 

Expenses

Cost of sales

17,593,913 

20,730,715 

Depreciation, depletion, amortization and accretion

3,628,596 

3,832,236 

General and administrative

2,078,897 

2,056,709 

Total operating expenses

23,301,406 

26,619,660 

 

Operating loss

(4,266,461)

(6,150,928)

 

Other income (expense)

Interest expense

(2,104,348)

(1,868,844)

Interest income

298,637 

216,754 

Other income (expense), net

110,654 

124,124 

Total other income (expense)

(1,695,057)

(1,527,966)

 

Net loss

(5,961,518)

(7,678,894)

 

Preferred stock dividend

(207,875)

(240,599)

 

Net loss attributable to common shareholders

$ (6,169,393)

$ (7,919,493)

 

Basic net loss per common share

$ (0.35)

$ (0.56)

 

Diluted net loss per common share

$ (0.35)

$ (0.56)

 

Weighted average common shares

17,509,633 

14,076,661 

NATIONAL COAL CORP.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(UNAUDITED)

Three MonthsEnded March 31,

2007 

2006 

Cash flows from operating activities

Net loss

$ (5,961,518)

$ (7,678,894)

Adjustments to reconcile net loss to net cash provided by operating activities:

Depreciation, depletion, amortization and accretion

3,628,596 

3,832,236 

Amortization of deferred financing costs

172,211 

142,258 

Amortization of notes discount

161,331 

142,843 

Gain on disposal of assets

(164,457)

(115,579)

Gain on extinguishment of debt

50,720 

(8,544)

Settlement of asset retirement obligations

(191,514)

(68,316)

Non-cash compensation:

Stock option expense

234,875 

348,848 

Related party option expense

434,493 

– 

Changes in operating assets and liabilities:

Decrease (increase) in accounts receivable

457,317 

(737,649)

Increase in inventory

(2,285,648)

(1,362,443)

Decrease (increase) in prepaid and other current assets

170,108 

(388,320)

Decrease in other non-current assets

27,903 

– 

(Decrease) increase in accounts payable and accrued expenses

(2,079,607)

4,665,778 

Increase (decrease) in other non-current liabilities

66,117 

(2,787)

Decrease in deferred revenue

(128,611)

(26,144)

Net cash flows used in operating activities

(5,407,684)

(1,256,713)

 

Cash flows from investing activities

Capital expenditures

(1,358,241)

(10,576,902)

Proceeds from sale of equipment

1,040,932 

385,000 

Increase in restricted cash

(200,864)

(7,797,607)

Increase in prepaid royalties

(290,134)

(188,880)

Net cash flows used in investing activities

(808,307)

(18,178,389)

 

Cash flows from financing activities

Proceeds from issuance of common and preferred stock

13,950,000 

9,018 

Proceeds from exercise of options and warrants

– 

223,300 

Proceeds from issuance of notes payable

441,077 

– 

Proceeds from borrowings on Term Loan Credit Facility

2,000,000 

– 

Repayments on notes payable

(1,664,548)

(1,059,932)

Repayments of capital leases

(604,747)

(69,712)

Payments for deferred financing costs

(25,346)

(14,410)

Dividends paid

(371,317)

– 

Net cash flows provided by (used in) financing activities

13,725,119 

(911,736)

 

Net increase (decrease) in cash

7,509,128 

(20,346,838)

Cash and cash equivalents at beginning of period

2,180,885 

25,434,988 

Cash and cash equivalents at end of period

$ 9,690,013 

$ 5,088,150 

NATIONAL COAL CORP.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)(UNAUDITED)

Three MonthsEnded March 31,

2007 

2006 

Supplemental disclosures

Interest paid in cash

$ 313,929 

$ 120,159 

Non-cash investing and financing transactions:

Preferred stock dividends converted to common stock

– 

16,127 

Equipment acquired via installment purchase obligations and notes payable

250,338 

477,967 

Equipment acquired via capital leases

248,900 

265,300